Chesapeake Energy Corporation and Gastar Exploration Ltd. Announce Letter of Intent
September 19 2005 - 9:45AM
PR Newswire (US)
Chesapeake Agrees to Acquire 19.9% of Gastar's Common Stock and a
33% Interest in Gastar's Hilltop Prospect, Also Forms a 50/50 AMI
to Explore 13 Counties in East Texas OKLAHOMA CITY and HOUSTON,
Sept. 19 /PRNewswire-FirstCall/ -- Chesapeake Energy Corporation
(NYSE:CHK) and Gastar Exploration Ltd. (OTC Pink Sheets: GSREF;
Toronto: YGA) jointly announced today that they have executed a
Letter of Intent ("LOI") outlining the terms under which Chesapeake
proposes to i) acquire new common shares from Gastar equal to 19.9%
of Gastar's outstanding common shares, ii) acquire a 33% working
interest in Gastar's Deep Bossier play in the Hilltop Prospect area
of Leon and Robertson Counties of East Texas and iii) form an area
of mutual interest ("AMI") to explore 13 counties in East Texas.
Under the terms of the LOI, Chesapeake will acquire for cash newly
issued common shares equal to 19.9% of Gastar's basic outstanding
shares at a price equal to the lesser of i) $3.31 per share (or
approximately USD $2.80 per share at current exchange rates) or ii)
the average of the closing price of Gastar's stock for the three
business days immediately preceding the date of closing (the
"Average Price"), with such Average Price not to be less than $3.15
per share (or approximately USD $2.66 per share at current exchange
rates). Gastar currently has 135.2 million common shares
outstanding and will issue to Chesapeake approximately 26.9 million
new shares. From the stock offering, Gastar expects to raise
approximately CND $84 to $89 million (or approximately USD $72 to
75 million at current exchange rates) and plans to use the proceeds
to accelerate its drilling activities in East Texas, reduce
short-term debt, and for general corporate purposes. Chesapeake
will be granted registration rights for the shares issued pursuant
to this transaction. Under the terms outlined in the LOI,
Chesapeake will also purchase from Gastar for cash and the drilling
commitment described below an undivided 33.33% of all of Gastar's
leasehold working interest in the Deep Bossier Hilltop Prospect,
less and except the 160 acre units surrounding each of Gastar's
existing wellbores. In the Hilltop Prospect Gastar currently owns
approximately 54,000 gross acres and 38,000 net acres. The acreage
purchase price of approximately USD $8.6 million shall be paid in
cash by Chesapeake at closing. With respect to operations on
Gastar's retained 66.67% leasehold working interest in the
properties proposed to be assigned to Chesapeake, Chesapeake will
pay a disproportionate amount of the drilling costs through casing
point on the first six (6) wells drilled by the parties in the
Hilltop Prospect to a depth sufficient to test the Deep Bossier
Formation (an approximate depth of 19,000'), proportionately
reduced to the combined interest of Gastar and Chesapeake in each
such well. Under this arrangement, Chesapeake would bear 44.44% of
the costs through casing point on an 8/8ths basis for a 33.33%
working interest. Gastar will be designated the operator of all
wells drilled in the Hilltop Prospect and Chesapeake has agreed to
provide 1-2 additional drilling rigs to Gastar in early 2006 if
needed to increase its rig count at Hilltop. Chesapeake and Gastar
will also form an AMI covering all of Leon, Robertson, Houston,
Cherokee, Madison, Anderson, Angelina, Nacogdoches, Trinity, Polk,
Shelby, San Augustine and Sabine Counties, Texas (the "AMI Area").
For a period of three (3) years from the Closing Date, Gastar shall
offer Chesapeake the exclusive first right to purchase up to an
undivided 50% of any leasehold/working interest rights acquired by
Gastar in the AMI Area on pre-determined terms. The AMI will be
"one-way", that is Chesapeake will not be obligated to present to
Gastar any interests it now owns or acquires in the future in the
AMI Area. The proposed transaction is subject to satisfactory
completion of a due diligence investigation by Chesapeake and the
negotiation of a mutually agreeable stock purchase agreement,
registration rights agreement, lease purchase agreement, lease
assignment form and joint operating agreement for the Hilltop
Prospect. Gastar expects to execute definitive agreements and issue
the stock to Chesapeake by October 31, 2005. Any sale of Gastar's
leasehold interest shall be subject to any existing rights of first
refusal held by third parties through existing Joint Operating
Agreements. Aubrey K. McClendon, Chesapeake's Chairman and CEO,
commented, "We are pleased to announce today's agreements with
Gastar. We have known Russ for years and have admired his success
in building Gastar and developing the Hilltop Prospect. We believe
today's announced transactions will benefit both companies and we
look forward to a long and mutually beneficial relationship with
Gastar." Also commenting on the agreement, J. Russell Porter,
Gastar's President and CEO stated, "Gastar is very excited to
partner with Chesapeake, not only on a working interest basis in
our East Texas activities but also corporately through Chesapeake's
equity investment in Gastar. This transaction will result in
Gastar's current business plan being fully funded through 2006 to
pursue its operating plans in East Texas. We are proud that
Chesapeake has decided to assist us in this endeavor." Chesapeake
Energy Corporation is the third largest independent producer of
natural gas in the U.S. Headquartered in Oklahoma City, the
company's operations are focused on exploratory and developmental
drilling and property acquisitions in the Mid-Continent, Permian
Basin, South Texas, Texas Gulf Coast, Barnett Shale, and Ark-La-Tex
regions of the United States. The company's Internet address is
http://www.chkenergy.com/ . Gastar Exploration Ltd. is an
exploration and production company focused on finding and
developing natural gas assets in North America and Australia. The
Company pursues a balanced strategy combining select higher risk,
deep natural gas exploration prospects with low-risk coal bed
methane (CBM) development. The Company owns and controls
exploration and development acreage in the Deep Bossier gas play of
East Texas and in the deep Trenton- Black River play in the
Appalachian Basin. Gastar's CBM activities are conducted within the
Powder River Basin of Wyoming and upon the approximate 3.5 million
acres controlled by Gastar and its Joint Development partners in
Australia's Gunnedah Basin, PEL 238 and Gastar's Gippsland Basins
located in New South Wales and Victoria respectively. The company's
internet address is http://www.gastar.com/ . DATASOURCE: Chesapeake
Energy Corporation CONTACT: investors, Jeffrey L. Mobley, CFA, Vice
President-Investor Relations and Research, +1-405-767-4763, or , or
media, Thomas S. Price, Jr., Senior Vice President - Corporate
Development, +1-405-879-9257, or , both of Chesapeake Energy
Corporation Web site: http://www.chkenergy.com/
http://www.gastar.com/
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